CP - Negative Income Tax - Michigan 7 2023 BFHGR

Negative Income Tax
1NC
1NC – Income tax
The United States federal government should implement a Negative Income Tax.
Solves every AFF internal link---inequality, automation, unions, innovation, and poverty---but is politically feasible.
Oshan Jarow 5-19-2020; fellow with Future Perfect at Vox, degree in economics & philosophy; A Negative Income Tax for the 21st Century; Musing Mind; https://www.musingmind.org/essays/negative-income-tax-proposal; DL
Such an NIT is both economically and politically feasible. Within a year of passing, it could eliminate official poverty, increase the circulation of capital throughout the economy, reduce inequality, and insulate a basic degree of livelihood from potential shocks such as loss of employment, automation, pandemics, or changing life circumstances.
In the longer term, a basic income improves the conditions for social innovations to occur alongside technological ones. Raising the economic floor lowers the risks associated with experimental behavior. It lifts everyone towards a threshold of financial security beyond which we have more freedom to decide how to spend our time. This kind of free time, contrasted with time that must be spent working for money, is fertile soil for innovation.
Moving towards collective liberation from the strictures of economic anxiety could provoke an upsurge in the kinds of broader innovation we need to meet the spectrum of challenges facing our civilization. Economic freedom is an intersectional catalyst towards ecological, racial, feminist, and mental freedoms.
I calculate this NIT would cost $855 billion per year. My funding proposal details two primary categories of revenue: reforming and eliminating existing welfare and tax programs ($346 billion), and implementing new progressive taxes ($744 billion). Together, these reach a total funding capacity of $1.09 trillion, $235 billion above my funding estimate. Crucially, the plan does so without raising the tax burden on most Americans.
What Is a Negative Income Tax?
NIT is a targeted basic income that phases out as one’s earnings increase. It’s composed of two variables: an income floor, and a phaseout tax rate. The income floor sets the amount an individual with $0 of annual income receives from the program: the maximum benefit amount one can receive from the NIT.
The phaseout rate determines how much of the NIT is phased out for each dollar of earned income. The lower the rate, the larger the category of people who benefit from the NIT program, and the more work incentives are preserved (because earning additional income loses you less of the NIT benefit). But the higher the programs cost. Conversely, higher rates mean fewer people benefit and incentives for low-wage work are decreased. But the cost is lessened.
Together, the phaseout tax rate and the income floor create a third element: the breakeven point. This is the earnings level at which NIT benefits are fully phased out to $0.
Why a Negative Income Tax
How is it that in a society as wealthy as ours, economic anxiety remains the prevailing reality for so many? This question has vexed economists at least since Henry George in the late 1800’s. In our time, after centuries of vigorous capital accumulation, we are past due to leverage our wealth to provide a basic income that reduces the hold economic insecurities have upon our lives, behaviors, and minds.
NIT is both an economic and politically feasible way to implement this basic income. It’s a policy with immediate and obvious effects, followed by more subtle, and perhaps profound ones.
Within a year of passing, NIT could:
Eliminate poverty by setting the income threshold above the federal poverty line
Reduce inequality and increase the circulation of capital throughout the economy by redistributing wealth from its accumulation at the top back towards lower income groups who are more likely to spend it
Increase the bargaining power of workers by increasing their ability to meet their basic needs outside of employment, empowering them to more readily reject undesirable or exploitative labor contracts
Guarantee and protect a basic degree of livelihood from potential shocks such as loss of employment, automation, pandemics, or changing life circumstances.
1NC – Funding – Taxes
---fund it via folding existing welfare and progressive taxation.
That provides more than enough.
Oshan Jarow 5-19-2020; fellow with Future Perfect at Vox, degree in economics & philosophy; A Negative Income Tax for the 21st Century; Musing Mind; https://www.musingmind.org/essays/negative-income-tax-proposal; DL
How to Pay for NIT
For my funding calculations, I chose to use Philip Harvey’s $1.09 trillion as the funding target rather than my own. I do so to demonstrate that whatever the cost, an achievable funding proposal is well within reach.
Funding Summary
A $1.09 trillion NIT program could be funded through two categories of funding. First, eliminating or reforming existing welfare and tax programs. Second, implementing new progressive taxes.
We could eliminate redundant welfare programs such as the earned income tax credit, supplemental security income, supplemental nutritional assistance program, and temporary assistance for needy families (total revenue of $198 billion). We could eliminate wealthy-favoring tax programs like the mortgage interest deduction and the real estate tax deduction ($89 billion). And we could reduce the defense department’s budget by 10% ($59 billion).
In total these provide $346 billion towards the cost. I then offer two strategies for approaching the remaining $744 billion via progressive taxation.
We may either enact one single, large tax, or we may prefer implementing a series of smaller progressive taxes. Options for the single tax include a value added tax (raising $600 billion - $1.3 trillion in new revenue depending on exclusions), or an adaptation of Saez & Zucman’s proposed national income tax that draws upon both labor and capital. They estimate a 6% flat rate could raise $1.2 trillion. I estimate phasing the tax in on incomes above the NIT breakeven point to a top rate of 5% would be sufficient to cover the remaining $744 billion.
For the series of smaller taxes, we could fully fund the NIT with: progressive top income tax rates ($18.9 - $70 billion), carbon tax ($100 - $210 billion), wealth tax ($118 - 375 billion), financial transaction tax ($70 billion), and raising the effective corporate tax rate ($235 billion).
1NC – Administration – Streamline Taxes
---streamline tax reporting systems.
Solves concerns about administrative shortcomings.
Oshan Jarow 5-19-2020; fellow with Future Perfect at Vox, degree in economics & philosophy; A Negative Income Tax for the 21st Century; Musing Mind; https://www.musingmind.org/essays/negative-income-tax-proposal; DL
Administration
The actual administration of the NIT - scaling benefits appropriately with fluctuating incomes on a monthly basis, and distributing those payments to all recipients - presents both obstacles, and opportunities. Presently, we struggle enough with reporting our incomes annually. It is difficult to imagine citizens reporting their incomes monthly, in order to receive appropriately sized NIT checks.
But we’re well overdue to redesign our income and tax reporting systems in light of the latest digital technologies and platforms. We certainly don’t lack the public interest, nor political will, to simplify tax reporting systems.
Consider, for example, a digital income reporting platform that each citizen is responsible for updating monthly (better yet, remove the friction by automating the process, so that any income earned automatically registers on this ledger). Monthly NIT payouts can adjust in response to these income declarations. Then, when we do our annual taxes as usual, our official annual incomes are available to resolve any discrepancies.
Individuals who under-report their incomes on the monthly platform, therefore receiving more NIT than they should, can pay it back in the form of a tax penalty (and perhaps with an additional fine, disincentivizing systematic underreporting to effectively treat extra NIT payouts as a line of credit).
2NC – Solvency
Solvency – UBI
NIT replicates the benefits of a UBI, but costs far less and is politically palatable.
Samuel Hammond 6-9-2016; resident senior fellow, formerly an economist for Canada, former graduate research fellow at George Mason University; “Universal Basic Income” is Just a Negative Income Tax with a Leaky Bucket; Niskanen Center; https://www.niskanencenter.org/universal-basic-income-is-just-a-negative-income-tax-with-a-leaky-bucket/; DL
Fantastic. The only problem is that, as it’s currently being discussed, UBI comes across as expensive. Very expensive.
The representative proposal is $10,000 per person per year. That implies an over $3 trillion dollar price tag. Writing in the New York Times, Eduardo Porter points out that, even if cut in half to $5,000, a UBI would still cost “as much as the entire federal budget except for Social Security, Medicare, defense and interest payments.”
Cost estimates like this are damning to the UBI cause, and hurt its potential of ever being enacted. Switzerland just rejected a UBI proposal in a landslide referendum, largely because of confusion over how it would be funded.
But this doesn’t have to be the case. The reason is a constant source of frustration for economists trying to assess transfer programs of all types. Namely, universal transfer programs like a Basic Income cannot be analyzed outside of the tax system that pays for it.
Taxes and transfers are two sides of the same coin. You might as well call taxes negative transfers, so to propose a lump sum transfer like UBI without an explicit discussion of how it’s financed only tells half the story. On Twitter, the economist Nick Rowe was a bit more blunt.
Indeed, adding in the tax system is necessary for conceptual clarity. And one of the first things it clarifies is how every working UBI proposal is really, at heart, a Negative Income Tax (NIT) proposal in disguise.
Universal Basic Income v. Negative Income Taxes
The NIT, popularized by Milton Friedman, is an extension of the progressive tax system into negative territory. Just as someone making lots of money pays a higher tax rate, those below the poverty line would pay an increasingly negative tax rate—which is to say, the IRS would pay them.
A simple diagram makes it easy to see why a UBI with flat tax is functionally equivalent to an NIT. I’ve ignored complications like deductions and payroll taxes, and treated the United States as having a linear tax structure, rather than a step-wise structure with discrete tax brackets. This is just to make it easier to represent the tax and transfer system holistically, for illustrative purposes, although the basic point would still hold with those elements added in.
The flat tax is represented by the red line, rising as a function of earnings, while the blue line is the UBI, i.e. a lump sum transfer payment to every individual in the economy, independent of earnings. Summing the two gives taxes net of transfers, the purple line. From this, it becomes trivially obvious that all a UBI really does is shift down the intercept of the net / effective tax structure.
When UBI advocates are faced with the challenge of a $3 trillion dollar price tag (here, the area beneath the blue line) they usually point out that it could be paid for by higher taxes. As Yglesias put it, “There is no doubt that this is a lot of money. It amounts to approximately 16.7 percent of GDP, which would obviously be a huge increase in the size of the federal budget,” but, nonetheless, the rich can “afford to pay higher rates.”
Rebuttals like Yglesias’s amount to a defense of giving the rich a lump sum tax cut in exchange for an offsetting marginal tax hike, reducing work effort to no real end. Ignored is the alternative where we don’t transfer thousands of dollars to middle and upper income people in the first place. Remember, much of that 16.7 percent of GDP would be government taking income from the wealthy and giving it straight back. And as the famous economist Arthur Okun once pointed out, when the government transfers money, it does so in a leaky bucket.
What About Loss Aversion?
When I made this point to Scott Santens, arguably UBI’s leading advocate, he countered that phasing-out UBI directly through means testing, versus phasing-out UBI indirectly through higher tax rates, while analytically identical as far as disposable income is concerned, have different behavioral implications.
This argument, while interesting, is grasping at straws. People have loss aversion, certainly, but that’s not an argument against phasing-out a Basic Income. Rather, it’s an argument for being careful about how the phase-out is framed and communicated. Getting a refund on your tax return feels pretty good as is, despite the existence of possible worlds where the refund could have been larger.
On the topic of behavioral implications, policy makers cringe whenever they hear the massive trillion dollar gross cost of a UBI, so why not quote the (substantially smaller) net cost embodied in an NIT? One can even continue marketing it as “Basic Income” since it still works to provide an income floor for one and all.
The Cost Difference Between UBI and NIT is Significant
Just how much of a cost difference is there between a UBI and NIT? To get a rough idea, I used the Census population survey’s Annual Social and Economic Supplement, which has the distribution of individuals over the age of 15 by income level in $2,500 intervals (I subtracted retirees). I then calculated the transfer each quantile would receive based on a hypothetical NIT which starts at $5,000 for individuals with zero income and is phased out at a rate of 30%. Multiplying the average transfer by the number of actual individuals in each grouping and summing, I arrived at total cost of $182 billion—roughly the combined budget for SSI, SNAP and EITC.
Recall that the naive way of calculating a $5,000 UBI would be to simply multiply $5,000 by 320 million people to arrive at total cost of $1.6 trillion. Yet by framing the Basic Income as an NIT, not only is it conceptually clearer, but the back-of-the-envelope price tag drops an order of magnitude.
That’s significant. If a Basic Income is ever going to have a life outside the minds of policy wonks, allaying fears of its budgetary impact is a big and necessary first step.
Solves better.
Max Sawicky 7-26-2021, senior research fellow at the Center for Economic and Policy Research, formerly worked at the Economic Policy Institute and the Government Accountability Office, An Old Idea for a Guaranteed Income Is Back in Style, https://inthesetimes.com/article/guaranteed-income-negative-tax-basic-economy, DL
How a negative income tax works
The negative income tax has been called an ​“upside-down” income tax. Eligible individuals receive a fixed cash benefit that is reduced according to income from other sources, also known as ​“means-testing.” For instance, if the benefit provided is $10,000 with a ​“phase-out rate” of 50 percent, and a person’s other income is $12,000, the benefit would be reduced by 50 percent of this other income, or $6,000, leaving a net benefit of $4,000. In this example, any income above $20,000 would ​“zero out” the benefit.
Like the universal basic income (UBI) idea, an NIT benefits those with the lowest incomes, or no income at all.
Means-testing has provoked criticism on the Left, but it is the only way to keep the cost of a cash benefit manageable enough to fit into the federal budget. The UBI is thought to avoid means-testing, but this is incorrect. Insofar as the UBI is taxable and returned to the government in income taxes, for all practical purposes it too is means-tested.
The NIT proposed in the paper, which we’ll call ​‘ZSCGH,’ from an acronym of the authors names, is a logical extension of Biden’s CTC in several respects. One is that it’s ambitious in terms of cost — estimated at $876 billion a year — but not wildly out of sync with the scale of current budget thinking. Like the new CTC, it does not require recipients to be employed. The program would also be tax-based, pitched as a reform of the Earned Income Tax Credit (EITC), and administered by the Internal Revenue Service. And finally, it’s targeted and not universal, which is why its cost is plausible.
Problems with UBI
In all these respects, it surmounts the difficulties of popular UBI advocacy, the greatest of which is the unrealistic cost: A UBI that genuinely meets basic needs would be entirely out of bounds of existing or plausible federal budgets.
A UBI provides an unconditional cash grant to everyone. (Exactly who constitutes ​“everyone” is actually a ticklish issue, but one left for another time.) One UBI proposal for $6,000 a year — well short of ​“basic” if basic means something a person could live on — is estimated to cost $1.9 trillion annually. (When you hear about budget packages of $4 or $6 trillion, that generally means over a ten-year period. The annual amount would be a tenth of that.) Andrew Yang’s proposal for $12,000 per person would cost $2.8 trillion a year.
Sometimes UBI advocates will defend against sticker shock by cautioning that the bulk of that cost would be reclaimed with higher taxes. The biggest flaw in that argument is political: Imagine Democratic politicians’ reactions to the idea of an annual tax increase of a trillion dollars, per year.
The main economic flaw of this approach is that the so-called ​“claw-back” — which amounts to a humongous tax increase — contradicts claims that a UBI would have no incentive effects. In other words, a great part of the UBI benefit is reclaimed by the federal government though the individual income tax, and the net taxes (tax increase minus the UBI benefit) of many would rise to finance a UBI. A tax on income is said to discourage work, saving or investment, though such claims are routinely exaggerated by the Right. But the claim that the UBI escapes incentive effects altogether is another myth fostered by its advocates.
Another problem is that the round-trip of that enormous amount of money — from government to person as UBI benefits, back to the government as tax increases — would lose a lot of passengers along the way: Roughly one dollar in six owed in federal taxes is not paid on time, or ever.
A more just safety net
The ZSCGH paper wisely highlights the impact of the NIT in the realm of racial justice. As with other social-democratic proposals, a benefit that reduces class inequality also reduces (but does not eliminate) racial inequality. The authors document the household poverty rate by race as follows: whites, eight percent; Blacks, 18 percent; Latinx, 17 percent. An NIT that eliminates poverty, or that just cuts it in half, benefits larger proportions of Black and Latinx households, simply because their poverty rates are higher to begin with. The paper’s authors also write that their proposal narrows median income gaps by race, since the benefits would extend well above the official poverty line. The reduction in gender inequality, especially for female-headed households, follows for the same reasons.
Eliminating poverty by raising individual incomes with cash benefits is not the limit of progressive objectives. We would not want people to rely on cash to buy health insurance or clean water, for instance. People also need public services and facilities, with social insurance programs alongside a social safety net strengthened by an NIT.
We also want to empower workers to win higher wages from employers. The cushion afforded by a guaranteed income would help workers bargain for better deals, since they become more able to withhold their labor, or to take a spell out of the labor market. But still, you can’t knock cash.
Even with guaranteed public employment

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